Philly Fed Index Rises More Than Expected But Remains Negative

9/20/2012 10:37 AM ET

Manufacturing firms in the mid-Atlantic region reported nearly flat business activity in September, according to a report released by the Federal Reserve Bank of Philadelphia on Thursday, with the index of activity in the sector rising much more than expected.

The Philly Fed said its diffusion index of current activity rose to a negative 1.9 in September from a negative 7.1 in August. While a negative reading still indicates a contraction in regional manufacturing activity, economists had expected the index to show a more modest increase to a negative 4.0.

While the index remained in negative territory for the fifth consecutive month, the reading for September is the highest since the index came in at a positive 8.5 in April.

A turnaround by new orders contributed to the slower pace of contraction in the sector, with the new orders index climbing to a positive 1.0 in September from a negative 5.5 in August.

On the other hand, the shipments index tumbled to a negative 21.2 in September from a negative 11.3 in August, indicating an acceleration in the pace of contraction.

The Philly Fed said declines in inventories were also more widespread this month, and firms reported continued declines in unfilled orders and shorter delivery times.

The report also showed that the number of employees index edged up to a negative 7.3 in September from a negative 8.6 in August, although the negative reading indicates the third month of contraction in employment in the Philadelphia-area manufacturing sector.

With regard to inflation, the prices paid index dipped to 8.0 in September from 11.2 in August, while the prices received index slid to a negative 0.2 from a positive 2.8.

The Philly Fed said most of the survey's future indicators improved from their readings in the previous month, with the future general activity index surging up to 41.2 in September from 12.5 in August.

With the substantial increase, the future general activity index rose to its highest level since coming in at 49 in January.

Fifty percent of firms expect an increase in manufacturing activity over the next six months compared to 9 percent that expect a decrease in activity.

Monday morning, the New York Federal Reserve released a separate report showing that conditions for New York manufacturers have deteriorated at an accelerated rate in the month of September.

The New York Fed said its general business conditions index fell to a negative 10.41 in September from a negative 5.85 in August, with a negative reading indicating a contraction in regional manufacturing activity. Economists had been expecting the index to climb to a negative 2.0.

With the unexpected decrease, the general business conditions index fell to its lowest level since coming in at a negative 19.29 in April of 2009.